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Orange Loan Modification Lawyers on Home Builders' Contribution to the Mortgage Crisis

April 30, 2009

A report by a construction workers' union accuses the home building industry of contributing to the mortgage crisis with illegal practices that trapped thousands of buyers in mortgages they couldn't afford. Authored by the Alliance for Home Builder Justice, a project of the Laborers' International Union of North America, "Cruel Hope: The Abusive Practices of Corporate Homebuilders and Their Mortgage Subsidiaries in California" says home builders steered buyers toward lenders that the builders either owned or were affiliated with. Then, the report alleges, buyers were offered expensive loans that they could not afford in many cases. It also notes that lender Countrywide KB Home Loans has been accused in multiple lawsuits of inflating home prices.

The report describes practices at major home builders that put strong pressure on buyers to use the builders' own mortgage lending divisions. Two builders actually require buyers to apply to their own lenders; buyers are free to apply elsewhere, but if another lender does not meet their deadlines, the buyers lose thousands in deposit money. Another charges high late fees and bans the use of government homeowner assistance programs. The builders also entice customers by promising to pay closing costs and other fees, but many buyers seem to receive little of value in return, the report said. Meanwhile, the report said, at least one builder was pressuring appraisers and executives to inflate the value of homes, increasing profits but leaving homeowners "underwater."

Meanwhile, buyers were steered into adjustable-rate and subprime mortgages in record numbers. For example, subprime mortgages originated by lender Lennar made up 2 percent of all of its loans in San Bernardino and Riverside Counties in 2004; in 2006, that rate ballooned to 31 percent. Builder Pulte saw a 91 percent increase in prime loans between those two years, but a staggering 1,832 percent increase in subprimse loans. Even buyers who qualified for a prime loan were offered "piggyback" loans in which the second, smaller mortgage was adjustable-rate or subprime. When the subprime market collapsed, the lenders moved to Federal Housing Administration loans, which are federally insured. Now, the report says, the default rate for these FHA loans originated by builders is higher than average for seven of California's ten largest home builders.

The Alliance ends its report with a call to end builders' ability to issue their own mortgages, contending that this allows collusion, inflation of home values and ultimately contributed to the mortgage crisis. It called for passage of the federal bankruptcy "cramdown" provision and California's AB 1534, which would ban the practice of builders originating their own mortgages. As Fountain Valley loan modification lawyers, we agree on both counts. Mortgages are so complicated, and so rare an event in most people's lives, that most buyers simply aren't equipped to fully understand how the process works and what they are being offered. This puts lenders and others in a position to exploit them -- and it has become increasingly clear that some are more than happy to do so.

Anaheim-based Howard Law LLP has an active practice negotiating loan modifications on behalf of homeowners. More and more, our Costa Mesa loan modification attorneys are hearing from clients who have tried to negotiate a loan modification on their own, only to be ignored, endlessly transferred or offered a meaningless modification that wouldn't help protect their homes. Our Stanton mortgage loan modification lawyers can help by negotiating aggressively on your behalf, using any evidence of predatory lending practices as leverage to get the bank's attention fast. We have been successful at converting subprime and adjustable-rate mortgages to conventional structures, lowering interest rates and making other major changes that lowered our clients' monthly mortgage payments.

If you're facing default or foreclosure in Southern California and you're ready to take action, please contact Howard Law today for a free, confidential consultation on your case and your options.